January 27, 2021

A freelancer’s guide to pensions

Written by Martin Baxter

“Will you still need me, will you still feed me, when I’m 64?” Legend has it that Paul McCartney wrote those words when he was just 16, proving that it’s never too early to be thinking about retirement. 

Okay, so Sir Paul probably doesn’t have quite the same pension worries as your average freelancer. But all too often retirement planning is something that we push to the backs of our minds, a problem for the future. Freelancing is becoming an increasingly popular way to work amongst younger adults, but the average age of freelancers is 48 years old. The key thing about a pension is that the earlier you start saving, the more you will have in your “pot” for retirement. So why delay? This is our quick guide to pensions for freelancers thinking of getting the year off to a secure start. 

Who needs a pension? 

Eventually, as much as you love freelancing, you’re going to want to stop working and enjoy the things that retirement is supposed to be all about: pottering around the garden, taking leisurely trips abroad and spoiling your grandchildren. But to be able to stop work, you need to have the savings to support yourself, your dependents, and to fund the kind of lifestyle that you want to enjoy in your older age. 

It’s estimated that less than 20% of self-employed people in the UK pay into a pension. Of course, some of those may be saving for retirement in other ways, but many others will just not have sorted it yet, or feel like they don’t have the cash to spare. If you fall in the “putting it off” category, a fresh new year is the ideal time to come up with your plans for the future – and work out how to save for them. Since 2018, the Government’s auto-enrolment scheme means that all employers with eligible workers must automatically sign their employees up for, and contribute to, a qualifying pension. That means that this is one area where freelancers could easily get left behind by their employed counterparts. Without careful planning and a bit of research on the part of freelancers, we may see a generation where those who were self-employed don’t have the same financial security in later life as their peers. 

Are freelancers eligible for a state pension? 

Yes, as a self-employed person, you should still be eligible to get the state pension, provided you have paid enough in National Insurance over the years. There is a handy online tool on the Government website where you can check how many qualifying years you’ve racked up so far and your current estimate of payments and retirement age. If you have any gaps on your record you may be able to make voluntary National Insurance contributions in order to make up the shortfall and secure your entitlement. 

However, it should be noted that the State Pension is currently £175.20 a week, or just under £9,100 a year, so we’re not talking big money here. If you’re thinking of spending long summers luxuriating in a rented cottage on the Isle of Wight, like the protagonist of When I’m 64, you might want to have a little bit more in the bank, just to be safe. 

Why should I pay into a pension scheme? 

If your vision for retirement is more Bollinger on a boat than beans on toast, you’re going to want to pay into a private pension scheme as well. This is also the case if you’re hoping for early retirement – the state pension age is currently as high as 68 and being reviewed further, so if you’re hoping to slow the pace sooner, a savings scheme or private pension is a must. 

Pensions are a complex area, and there are many different types of scheme, so it’s worth doing some research to find one that suits you, your current income, and your plans for the future. There is a huge amount of information out there online, but if you’re struggling to sift through it all, then a trip to an independent financial advisor is highly recommended. They may charge a fee for a pension-planning service, but many offer at least an initial consultation for free. 

Your pension contributions may also be eligible for tax relief – your accountant or financial advisor will be able to tell you more about this. For most people, this means that your pension provider will automatically claim tax relief on your contribution, therefore adding another 20% onto your payments, though this of course varies according to your earnings, tax band and the pension scheme that you choose. 

Nothing in this blog constitutes financial advice – always speak to an expert if you’re making big financial decisions like a pension. This is a guide for general research and information only and shouldn’t be used to make a final decision on your financial arrangements. If you’re 50 or over, the Government’s Pension Wise service can offer you free and impartial specialist pensions guidance. 

Before you go… 

While you’re on a roll with the fiddly (but very important) admin stuff – why not take a minute to check that your business insurance is up-to-date? If you need a quote for flexible business insurance for freelancers that covers professional indemnity, public liability and business equipment, then head to our website or give our friendly team a call on 0116 380 5654. 

About Martin Baxter

Read more blog posts by Martin Baxter


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